The long-term objective of our research program is to understand causes of and develop treatments for the progressive beta-cell disease that causes type 2 diabetes (T2D). Our prior work and research by others provides important evidence that metabolic effects of obesity cause beta-cell failure. Lifestyle changes and medications that alter body fat or its biology appear to slow or stop beta-cell deterioration in some people, but not most. We hypothesize that substantial weight loss induced by gastric banding will be more effective than the best available medication, pioglitazone, in preserving or restoring beta-cell function. We propose a 2-arm, unblinded study to compare gastric banding to treatment with pioglitazone over a 24-month period in moderately obese Hispanic adults with pre- or mild T2D. The primary outcome will be change in beta-cell compensation for insulin resistance, which we will compare between groups. We will also examine other potential markers of beta-cell health. Secondary analyses will examine potential mediators of treatment-specific effects and look for more general mediators of beta-cell restoration or preservation. The main focus will be on mediators related to obesity. We will also examine fasting glycemia as a potential mediator of beta-cell restoration or preservation. Clinically, the project will serve as a test of concept for use of gasric banding relatively early in the spectrum of obesity and beta-cell disease. Biologically, the results will provide crucial information on potential mediators of beta-cell failure and its arrest or reversa in the context of obesity. Those mediators will guide the development of more effective treatment and monitoring for the beta-cell disease that causes T2D. We have secured agreement from Allergen to fund clinical care in the gastric band arm, so our approach is cost-effective for NIH. We bring field-leading expertise in beta-cell biology and preservation in humans. In the end, we believe we can make important new contributions to the field of T2D, as well as to the consortium that will be formed out of this RFA to advance clinical and biological knowledge in that field.